The dollar advanced on Wednesday, but briefly surrendered some of its gains in afternoon trading after a report from the Federal Reserve suggested the outlook for the U.S. economy isn’t as rosy as it was earlier in the year.

Thee greenback found support earlier after the Financial Times published the full transcript of an interview with Treasury Secretary Steven Mnuchin, in which he assured the public that President Donald Trump is “absolutely not” trying to talk down the greenback.

The ICE U.S. Dollar Index
DXY, +0.52%
a popular gauge of the dollar’s strength against a basket of six rivals, climbed 0.3% to 99.78, while the WSJ Dollar index
BUXX, +0.42%
which gauge’s the dollar’s strength against a broader basket of rivals, rose 0.3% to 89.80.

The euro
EURUSD, -0.7836%
weakened to $1.0716 late Wednesday in New York, while the dollar
USDJPY, +0.15%
climbed to ¥108.85 late Wednesday, compared with ¥108.42 late Tuesday in New York.

Mnuchin’s comments, which appeared Wednesday in a transcript of a Financial Times interview, was intended as a counter to President Donald Trump’s remark that the dollar is getting “too strong,” which appeared last week in The Wall Street Journal.

Juan Perez, a currency strategist at Tempus Inc., said the Beige Book could pose a problem for the Federal Reserve. Several Fed officials have said they would like to raise interest rates twice more this year if economic data justify such a move.

“In order for [the Fed] to consider hiking more than once you need a much stronger sense of optimism in the economy,” Perez said.

Neil Mellor, a currency strategist at BNY Mellon, said the back-and-forth between Trump and Mnuchin is another example of how Trump’s advisers try to clarify and refine some of his more market-moving remarks. Typically, the U.S.’s position on the dollar is articulated by the Treasury.

Anxieties surrounding the coming first-round vote in the French presidential election receded somewhat on Wednesday as polls appeared to affirm establishment candidate Emmanuel Macron’s front-runner status, said Neil Mellor, a currency strategist at BNY Mellon.

Still, investors appetite for the euro and European stocks has been dampened by the popularity of far-right candidate Marine Le Pen and leftist Jean-Luc Mélenchon, who are both polling within the margin of error.

Elsewhere on the Continent, a batch of European inflation data released Wednesday came in below the European Central Bank’s target, tempering expectations that the ECB might raise interest rates and curtail its massive bond-buying program as early as the first quarter of 2018. ECB President Mario Draghi will deliver the latest update to the central bank’s economic outlook after the close of next week’s policy meeting.

In Japan, Prime Minister Shinzo Abe’s decision to replace the two last remaining hawks on the Bank of Japan’s governing board suggested that the central bank will stick with its program of ultraloose monetary policy.

The central bank’s decision back in September to begin targeting a 0% yield for its 10-year government bonds fostered expectations that it would soon give up on the present monetary policy paradigm, which has so far failed to revive inflationary pressures.

Pound essentially flat, holds above $1.28

The pound moved lower on Wednesday, reversing some of its gains from earlier in the week, as U.K. lawmakers assented to Prime Minister Theresa May’s plan to hold an early general election on June 8.

Sterling
GBPUSD, -0.4752%
bought $1.2779 late Wednesday in New York, down from $1.2841 late Tuesday in New York.

The U.K. currency on Tuesday jumped by the most in three months, to its highest level since October. The move came after the British leader in a surprise move said the country needs a snap election to give the government a clear mandate ahead of the crucial Brexit negotiations with the European Union.

The renewed pound optimism came as the election announcement spurred hopes that May’s Conservative Party could win a bigger majority in parliament and put the U.K. in a better position to navigate through the coming divorce proceedings with Brussels. But traders were quick to take profits once they realized that the vote would do little to soften the European position as they haggle over the terms of the U.K.’s exit from the European Union, Perez said.

Some, including Naeem Aslam, chief market strategist at ThinkForex, said that, with the negotiations looming on the horizon, the outlook for the pound remains rocky.

“Theresa May could easily win the coming election according to the latest polls, however, this doesn’t mean that Brexit negotiations with her EU partners would be any easier. We do not think that Theresa May’s victory will have a substantial impact on the Brexit negotiations because it is the EU [that] will be calling the shots,” Aslam said.

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